Australian debt still AAA despite surplus miss

Wayne Swan's statement that a surplus is unlikely has not shifted Australia's credit rating.

Alan Porritt, file photo: AAP

Australia's AAA credit rating will remain unaffected in the short-term by the Government's abandonment of its surplus commitment.

All three major ratings agencies have reaffirmed the Commonwealth Government's top AAA rating, despite the Treasurer Wayne Swan saying yesterday that it is unlikely the goal of a budget surplus this financial year will be met.

Moody's analyst Steven Hess says a year's delay in returning to surplus is not really significant from a ratings perspective.

"Whether the government has a small surplus or a small deficit is not important for the rating," he told Reuters.

"Australia's government debt in comparison to other Aaa-rated sovereigns remains very low, and that relative position won't change in the foreseeable future."

Fitch Ratings says Mr Swan's move to acceptance that the Government is unlikely to deliver a surplus this year was not surprising.

The agency says the gross general government debt for Australia should peak at 28 per cent of gross domestic product next year - around half the median level for AAA-rated nations.

"Australia's low sovereign debt ratios mean that it can afford to reduce its deficit more slowly than other AAA economies, with more consideration for supporting its slowing economy and without diminishing its ability to absorb fiscal and economic shocks," Fitch noted in its report.

"The average duration and maturity of the debt have risen since the global financial crisis and almost all debt is in Australian dollars."

S&P also reaffirmed its AAA rating for the Australian government, with a stable outlook because it feels Australia is well placed to withstand potential adverse financial and economic shocks, and because of the political consensus about prudent budget policies.

However, the ratings agencies do point to some risks for Australia if some of the worst-case scenarios play out in the global economy.

S&P says the biggest threat relates to the Australian dollar's failure to adjust to changes in the nation's export prices, and the prospect of international funding drying up for Australia's banks.

"We could lower the ratings if external imbalances were to grow more than we currently expect, either because the exchange rate no longer adjusts to terms of trade movements, the terms of trade deteriorates quickly and markedly, or the banking sector's cost of external funding increases sharply," the agency noted.

"Such an external shock could lead to a protracted deterioration in the fiscal balance and the public debt burden. It could also lead us to reassess Australia's contingent fiscal risks from its financial sector."

Fitch says the future trajectory of the Chinese economy is one of the major determinants for Australia's credit rating.

"The slowdown in China has already affected the prices of Australia's coal and iron ore exports," it observed.

"Australia could be significantly hit if China has a 'hard landing', although this is not our expectation."